Iron Ore-China market still slow as traders stay away

Wed Jan 4, 2012

* Prices largely unchanged in first trading day of 2012
* No positive signals to entice buyers back to market
* Impact of Indian export tariff increase seen limited (Updates rebar price)

BEIJING, Jan 4 (Reuters) - Spot iron ore prices in China were mostly unchanged on the first trading day of 2012, with buyers and sellers unable to find a reason to rush back from a two-day new year break.

The offer price of 61.5 percent Pilbara fines, including cost and freight, stood in the $136-139 per tonne range on Wednesday, unchanged from the last trading day of 2011, industry consultancy Umetal said.

Analysts said there was little to entice buyers back into the market, with steel demand low and ore inventories generally sufficient to keep mills running.

"What concerns me a little bit is that Chinese mills seem to have restocked over the last three to four weeks without really pushing the price up at all," said Graeme Train, commodity analyst with Macquarie Securities in Shanghai.

Activity normally slows ahead of China's lunar new year, and many traders have expressed hope that the market will improve when the week-long holiday ends on Jan. 30, but the lull could last longer than that, said Train.

"It seems everyone is waiting for some signal that things are going to get meaningfully better but the government has been very slow to send a very positive signal," he said.

"There is really no catalyst, and we are probably looking at two very quiet months at least."

Analysts played down the impact of India's decision to raise export tariffs in order to guarantee supplies to domestic users, saying the influence of the world's third-biggest iron ore producer had already been on the wane.

India announced this week that it would increase iron ore export tariffs from 20 percent to 30 percent in an effort to guarantee supplies for domestic users.

"I can't see demand strong enough in 2012 to make global supply and demand tight enough to bring Indian marginal producers back into the market, so I can't see it supporting higher prices," said Sebastian Lewis, head of data and analytics with Steel Business Briefing in Shanghai.

"More likely it will accelerate the trend in declining Indian exports and Australia and other miners will be the beneficiaries," he said.

Umetal said Indian 63.5/63 percent iron ore was being offered at $143-146 per tonne on Wednesday, also unchanged.

It added in a research note that the decline in Indian iron ore export volumes had already been offset by growing shipments from South Africa, Iran, Canada and Russia.

While India remains China's third-biggest supplier after Australia and Brazil, its market share has been in decline. In the first 11 months of 2011, India's total shipments of 63.3 million tonnes represented 11 percent of the total, down from 15.6 percent in 2010.

Deliveries from South Africa, Iran, Canada and Russia reached nearly 73 million tonnes over the 11 months, up 33 percent compared with the same period of the previous year.

The most traded steel rebar contract on the Shanghai Futures Exchange ended Wednesday at 4,159 yuan ($660) per tonne, down 51 yuan per tonne or 1.21 percent from the previous session. ($1 = 6.294 yuan)

(sourced Reuters)